Prospectus liability

Section 18 of the Australian Consumer Law says that a corporation must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. Each of the states has comparable provisions and these are not limited to corporations. Schools must be mindful of these provisions when drafting their prospectus and other marketing material, whether online or hard copy.

It wasn’t that long ago that a student actually made a claim relying upon alleged misleading and deceptive conduct. The student enrolled at an English language school so that she could qualify to enter Year 11 at a NSW high school. She received an information brochure before she enrolled. Essentially, her complaint was that she was misled by the brochure and other things as to the time it would take to do the English preparation course to reach the level required for her to enter Year 11. The result for her was an additional year at school and therefore an additional year’s tuition fees.

The Tribunal hearing her claim said that the school clearly engaged in trade or commerce in the publication and distribution of the brochure. The Tribunal then noted that the student had to prove that:

• the school made a misrepresentation; that is, that its conduct in all the circumstances conveyed a representation that was inconsistent with the truth;
• the misrepresentation was misleading or deceptive; that is, that the school’s conduct led the student into error or misconception;
• the student relied on the misrepresentation; that is, the student was induced to do something or refrain from doing something as a result of the misrepresentation;
• as a result, the student suffered loss or damage.

Where it is alleged that a brochure contains misleading or deceptive representations, the test is whether what is written is misleading, deceptive or likely to mislead or deceive a reasonable person — a hypothetical person who is an ordinary or reasonable member of the class of persons who will see the brochure. Accordingly, reactions to the statements in the brochure that are extreme or fanciful are excluded as being unreasonable. Similarly, strained, false or unreasonable interpretations are rejected. One must ask how the ordinary, reasonable reader would understand the brochure. Where only a part of the brochure is relied upon as being misleading or deceptive, that part must be read in the context of the whole. It is wrong to select some words as misleading or deceptive if, in their context as a whole, they were not capable of being so.

It is not relevant that the school did not intend to mislead or deceive. Accordingly, there doesn’t need to be evidence of actual deception, although that will be required before damages will be awarded.

In this case, the student was able to show a number of incidences of misleading or deceptive conduct. For example, the brochure said that the school would provide progress reports on a regular basis to parents. The school had to concede that this was not done. The school also had some difficulty in that it was unable to prove that certain documents containing relevant terms had been provided to the student or her guardians. This underlines the importance of schools having enrolment procedures that carefully record what documents are provided to students or their parents when they are contemplating enrolment. Nevertheless, the claim failed because the student was unable to show that the misrepresentations were the cause of her loss.

As the Tribunal noted: “The solution, to avoid proceedings such as this, is the simple provision of full information, in the hands of the students and their parents, so that they are all properly informed.”